Tax & ATO News Australia

Taxpayer to sue the ATO for damages

The ATO is under fire again for not adequately compensating taxpayers whose lives it has turned into turmoil by the overzealous pursuit of them by its officers.

 

Gary Kurzer is one such taxpayer who, after being subjected to a five year tax audit lost not only his wealth but his health and marriage too, is now suing the ATO for a substantial amount in damages.
 
My client, Ron Pattenden, another taxpayer who fought the ATO six times over 10 years and won each and every time, which ordeal at the hands of the ATO has seen his health deteriorate tremendously is also considering such action.
 
An interesting article about both these taxpayers and the call for taxpayers’ rights to be enshrined in law was recently written by Chris Seage for Crikey.
 

Posted in: Tax & ATO News Australia at 25 July 13

New ATO taskforce

In the wake of Crown Insurance Services recent win in the High Court, the ATO has announced a new taskforce to examine the activities of companies which have based themselves offshore.

 

This taskforce could also be investigating overseas companies such as Google and Apple although the ATO will not confirm that these companies are or will be under scrutiny.
 
To read more see Chris Seage’s Crikey article.
 

Posted in: Tax & ATO News Australia at 17 July 13

Bankruptcy notices can now be served via email

It is long established that bankruptcy notices can be served via post, however, the decision of The Council of New South Wales Bar Association v Archer has established that bankruptcy notices can now be served via email.

 

In this case, the Court considered the effectiveness of a bankruptcy notice served via email under regulation 16.01 of the Bankruptcy Regulations 1996 (Cth). Regulation 16.01(1)(e) permits a bankruptcy notice to be sent via “facsimile transmission or another mode of electronic transmission”.
 
Federal Magistrate Lloyd-Jones noted that few cases have considered service by “another method of electronic transmission”. Accordingly he had to determine the case by logical extension of the principles relating to other methods of service. He was satisfied that the bankruptcy notice was validly served by email pursuant to the regulation.
 
This decision highlights the prevalence of electronic communication in legal dealings, and the importance of remaining vigilant of all lines of communication with respect to the service of legal documents.
 

Posted in: Tax & ATO News Australia at 27 June 13

Crown Insurance Services Limited wins in High Court against ATO

A long running fight between one of my clients and the ATO has had its final battle in the High Court on 6 June 2013.

 

Crown Insurance Services Limited, an offshore insurance company, succeeded in the High Court on 6 June 2013 in an application brought by the ATO to appeal against a Full Federal Court decision regarding the source of Crown Insurance's income. The ATO had lost in the Full Federal Court following an appeal from its loss in the Administrative Appeals Tribunal. A significant amount of tax was at stake in a case which could have had major ramifications for overseas companies which have dealings with Australian companies.
 
The ATO's case was that because Crown Insurance dealt with related Australian companies, which made their income from Australia, Crown Insurance's income was indirectly derived from Australian sources.
 
In running their appeals, the ATO ignored several High Court and other authorities over many years.
 
The ATO also argued that there should be a change of law on the determination of appeals from lower courts and tribunals.  Appeals from the AAT must be on a question of law and the ATO argued for a significant extension in the jurisdiction of the Federal Court to hear appeals.  The ATO was attempting to overturn long standing decisions including Pozzolanic Enterprises Pty Ltd v Collector of Customs and Collector of Customs v Agfa Gevaert. The effect of such a change of law would be to complicate appeals from the AAT and potentially turn all such appeals into a virtual re-hearing of the original decision.  This would add greatly to the already considerable cost of litigation in Australia.
 
Our client is immensely relieved at the win, but frustrated that the ATO has taken such a long time and wasted so much money fighting appeals that seemed doomed to failure from the outset.
 

Posted in: Tax & ATO News Australia at 07 June 13

Get your affairs in order before you leave Australia

Are you thinking about leaving Australia to take up a new job? Do you realise that you might be taxed in Australia on the income which you earn overseas? Seeking professional advice from a tax lawyer is imperative as they can provide you with the advice which you need to get your affairs in order so that you do not get surprised by an alarming tax bill.

 

If you are an Australian resident, you are taxed on income that you earn overseas. For example, if you accept a job in Dubai, you will be taxed in Australia on the income which you earn there. On the other hand, if you are a non-resident, you are only taxed on income which is sourced in Australia.
 
The residency tests used by the ATO to determine your residency status for tax purposes are not the same as those used by other Australian agencies, such as the Department of Immigration.

The main test that the ATO uses is the “resides test”. Basically, the ATO will look at whether you reside in Australia according to the ordinary meaning of “reside”.

If you do not satisfy this test, then the ATO may also look at any of the following tests:

• Have you been in Australia for more than 183 days in any year? (183 day test);
• Is your domicile in Australia? If it is, have you established a permanent place of abode outside of Australia (Domicile test); and
• Are you a current Commonwealth government employee? (Superannuation test).

The most contentious of these tests is the domicile test. Two recent AAT decisions found in favour of the ATO because although the taxpayers did not reside in Australia, the taxpayers were considered Australian residents for tax purposes because they failed to establish permanent places of abode outside Australia. In both cases, the taxpayers accepted employment overseas - one as a marine engineer in Dubai, the other as an operations technician in southern Oman. As the taxpayers were required to travel as part of their employment, both taxpayers lived in shared accommodation, but only spent a limited amount of time there. On this basis, the AAT held that the taxpayers had failed to establish permanent places of abode outside Australia.  In one case, the AAT described the taxpayer as a “citizen of the world”.

These cases clearly demonstrate that you need to carefully organise your affairs before you leave Australia.
 

Posted in: Tax & ATO News Australia at 05 June 13

Nice noises from Joe Hockey

In an address to the Canberra National Press Club on Wednesday 22 May 2013, the shadow Treasurer had some very interesting and promising things to say about the possible future of the ATO.

 

• He wishes to foster a more co-operative relationship between the ATO and taxpayers
• The relationship should be based on mutual respect, not adversarial
• Taxpayers are not the enemy
• He recognises the ATO’s powers are too one sided
• ATO officers often seem to lack objectivity
 
Joe Hockey has promised a Coalition government will establish a Parliamentary Committee charged with the oversight of ATO administration.
 
If necessary, the Coalition may break up the ATO to separate its administration and prosecutorial functions.
 
This recognition of the deep flaws in the current audit and dispute system is a welcome and excellent development in the Federal election – coming as it does in a major speech following the budget.
 
Hopefully the delivery will match the rhetoric and we can look forward to a less aggressive and destructive approach from the ATO in coming years.
 
More about Joe Hockey's speech - click here.

Posted in: Tax & ATO News Australia at 22 May 13

ATO not allowed to amend an assessment outside the two year period

For most individuals, the ATO has two years to amend an assessment after the individual has received the notice of assessment. Recently in Elliott, the AAT held that the ATO was not entitled to amend the taxpayer’s assessment outside of the two year period.

 

The taxpayer was employed as a pilot by a wholly owned subsidiary of Cathay Pacific. The taxpayer was in receipt of foreign earnings which he treated in his 2006 and 2007 returns as exempt. However, in Overseas Aircrew Basing Ltd, the Federal Court held that such income was not exempt and on this basis, the ATO tried to amend the taxpayer’s assessment outside the two year period.
 
The ATO argued that it was entitled to amend outside the two year period because the two year rule is qualified by the Income Tax Regulations 1936 (Cth). In particular, the ATO tried to rely on Regulation 20 Item 5 of the regulations which provides that the taxpayer has not identified income from one or more foreign transactions for the purposes of, or in the course of, the assessment. The ATO contended that the taxpayer had not 'identified' the relevant income because he had not 'identified' the income under the correct label in his returns.
 
The Tribunal found that, in the context of Regulation 20, the applicant only needed to identify in his returns an amount of income from a foreign transaction, as he had, and that he did not have to go the further step and make a correct assessment about whether that income was exempt or assessable.
 
I am pleased by the outcome of this decision as it prevents the ATO from pushing the boundaries on these time limits. It is also interesting that the ATO supports this decision. On 5 October 2012, the ATO released a Decision Impact Statement stating that, “[it] accepts that the Tribunal's view of the interpretation of Item 5 of Regulation 20, and its application of that view to the facts in this case, were properly open to it”.

Posted in: Tax & ATO News Australia at 08 May 13

NSW duty abolition is .... Gonski

The NSW government has yet again delayed the long awaited abolition of duty in NSW on mortgage duties on business transactions, duties on unquoted marketable securities, and duties on the transfer of non-land business assets.

 

NSW Premier Barry O’Farrell yesterday announced the further delay of the abolition of these duties to partly fund the contribution by the NSW Government to the Gonski reforms.
 
Each state government was required to abolish certain state taxes including duties as part of the trade-off for the introduction of the GST. The state governments committed to abolishing most duties as part of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations. In recent budget years the NSW government has consistently delayed the abolition of these key duties affecting businesses to fund budget holes or commitments.
 
It is safer to take the view that the abolitions of these duties is gonski and then we can all be pleasantly surprised when they are eventually abolished in the future.
 

Posted in: Tax & ATO News Australia at 24 April 13

ATO's power to amend assessments is subject to certain time limits BUT they can (and do) extend

The Australian tax system operates as a self-assessment system. This means that when you lodge your tax return, the ATO accepts the information in the return at face-value and issues you with an assessment notice based on that information. However, this does not mean that the assessment is final as the ATO can conduct an audit and amend your assessment. Fortunately, the ATO’s power to amend assessments is subject to certain time limits.

 

For most individuals, the ATO has two years to amend an assessment after the taxpayer has received the notice of assessment. The two year period also applies to companies, trusts and partnerships which carry on a small business entity. A small business entity is a business with an aggregate turnover of less than $2million in a financial year.
 
However, if an individual, company, trust or partnership carries on a business that is not a small business entity, then the period extends to four years.
 
It is important to note that the ATO has the power to amend an assessment at any time if the Commissioner of Taxation is of the opinion that there has been fraud or evasion. The problem with this rule is that it is subjective as it is based on the Commissioner of Taxation’s opinion.
 
One of my clients is faced with a situation where the ATO has amended his assessment nine years after the notice of assessment was issued based on the fact that the Commissioner of Taxation is of the opinion that there was evasion. The onus of proof rests with my client. Therefore, my client has to prove that there was no evasion.
 
Generally, it is not necessary to keep records indefinitely, but as the ATO has the power to allege tax evasion and assess you retrospectively, you should strongly consider keeping records, at least in electronic form, for longer periods than are legally required.
 

Posted in: Tax & ATO News Australia at 15 April 13

Section 264 notices

I have blogged previously about the ATO’s powers to force taxpayers to hand over documents and give evidence*. Recently I have applied the very narrow limitations imposed by the ANZ case in a number of s264 notices.

 

The powers of the ATO to issue these notices are very wide, but the ATO must get the wording of the notices right.  If the notice is vague, or uncertain, or in the words of the Full Federal Court if the notice “leaves too much of its meaning and application to be worked out by [the recipient]” then the notice will be invalid.
 
Objecting to a s264 notice on these grounds is not a final remedy.  The ATO can always re-issue a notice, even assuming that they agree with your argument that the notice is too unclear.  Furthermore, you must have very strong grounds because if you are wrong the ATO has the option to prosecute you for failing to comply.  Multiple offences can lead to imprisonment.
 
The broader issue is one of a recurring nature. The government has handed the ATO with an extremely large stick for investigating taxpayers, and for that matter, their advisers and service providers such as banks. The ATO can, and often does, use s264 notices for fishing expeditions. They are specifically allowed to do so. Because of their virtually unfettered power, in some cases the ATO officers are sloppy and lazy when drafting s264 notices.  The ANZ case makes it clear that because of the seriousness of the consequences of failing to comply with a s264 notice (ie jail time) the ATO must make the notices clear.  If the recipient has to guess at the ATO’s meaning, this is not good enough.
 
This is particularly so where the ATO is asking information of an accountant or lawyer with respect to their clients. If the adviser has to guess at the meaning of the s264, and guesses wrong (i.e. gives more information than the notice intended to the client’s detriment), it is likely the client would have a claim against the adviser for breach of express or implied duties of confidentiality.
 
If you receive a s264 notice and you are concerned as to its meaning and your duty to respond to it, please feel free to get in contact with me to discuss it.

* under section 264 of the Income Tax Assessment 1936 and section 353-10 of the Taxation Administration Act 1953
 

Posted in: Tax & ATO News Australia at 22 March 13

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Tax & ATO News Australia

Author: David Hughes

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